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Glossary of Terms |
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Glossary of Terms
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Original Principal Balance
The total amount of principal owed on a mortgage before
any payments are made.
Origination Fee
A fee paid to a lender to cover the administrative costs
of processing a loan application. The origination fee
typically is stated in the form of points. One point is
1 percent of the mortgage amount.
Owner Financing
A transaction in which the property seller provides all
or part of the financing for the buyer's purchase of the
property.
Owner Occupied Property
A property that serves as the borrower's primary
residence.
Partial Payment
A payment that is less than the scheduled monthly
payment on a mortgage loan.
Payment Change Date
The date on which a new monthly payment amount takes
effect, for example, on an adjustable-rate mortgage
(ARM) loan.
Payment Cap
For an adjustable-rate mortgage (ARM) or other variable
rate loan, a limit on the amount that payments can
increase or decrease during any one adjustment period.
Personal Property
Any property that is not real property.
PITI
An acronym for the four primary components of a monthly
mortgage payment: principle, interest, taxes, and
insurance (PITI).
PITI Reserves
A cash amount that a borrower has available after making
a down payment and paying closing costs for the purchase
of a home. The principal, interest, taxes, and insurance
(PITI) reserves must equal the amount that the borrower
would have to pay for PITI for a predefined number of
months.
Point
An amount equal to 1 percent of the loan amount.
Pre-Approval
A process by which a lender provides a prospective
borrower with an indication of how much money he or she
will be eligible to borrow when applying for a mortgage
loan. This process typically includes a review of the
applicant???s credit history and may involve the review
and verification of income and assets to close.
Pre-Qualification
A preliminary assessment by a lender of the amount it
will lend to a potential homebuyer. The process of
determining how much money a prospective home buyer may
be eligible to borrow before he or she applies for a
loan.
Prepayment
Any amount paid to reduce the principal balance of a
loan before the scheduled due date.
Prepayment Penalty
A fee that a borrower may be required to pay to the
lender, in the early years of a mortgage loan, for
repaying the loan in full or prepaying a substantial
amount to reduce the unpaid principle balance.
Principal
The amount if money owed on a loan, excluding interest.
Also, the part of the monthly payment that reduces the
remaining balance of a mortgage.
Private Mortgage Insurance (PMI)
Insurance for conventional mortgage loans that protects
the lender from loss in the event of default by the
borrower.
Promissory Note
A written promise to repay a specified amount over a
specified period of time.
Purchase and Sale Agreement
A document that details the price and conditions for a
transaction. In connection with the sale of a
residential property, the agreement typically would
include: information about the property to be sold, sale
price, down payment, earnest money deposit, financing,
closing date, occupancy date, length of time the offer
is valid, and any special contingencies.
Purchase Money Mortgage
A mortgage loan that enables a borrower to acquire a
property.
Qualifying Ratios
Calculations that are used in determining the loan
amount that a borrower qualifies for, typically a
comparison of the borrower's total monthly income to
monthly debt payments and other recurring monthly
obligations.
Rate Caps
For an adjustable rate mortgage loan, the maximum
interest rate that may be charged, either at the time of
each adjustment date or over the life of the loan.
Rate Lock
An agreement in which a lender "locks in" or guarantees
an interest rate for a specified period of time prior to
closing.
See also "Lock-in"
Real Estate Settlement Procedures Act (RESPA)
A federal law that requires lenders to provide home
mortgage borrowers with information about
transaction-related costs prior to settlement, as well
as information during the life of the loan regarding
servicing and escrow accounts. RESPA also, prohibits
kickbacks and unearned fees in the mortgage loan
business.
Real Property
Land and anything permanently affixed thereto —
including buildings, fences, trees, and minerals.
Recorder
The public official who keeps records of transactions
that affect real property in the area. Sometimes known
as a "Registrar of Deeds" or "County Clerk."
Rehabilitation Mortgage
A mortgage loan made to cover the costs of repairing,
improving, and sometimes acquiring an existing property.
Rescission
The cancellation or annulment of a transaction or
contract by operation of law or by mutual consent.
Borrowers may have a right to cancel certain mortgage
refinance transactions within three business days after
closing, or for up to three years in certain instances.
Revolving Debt
Credit that is extended by a creditor under a plan in
which (1) the creditor contemplates repeated
transactions; (2) the creditor may impose a finance
charge from time to time on an outstanding unpaid
balance; and (3) the amount of credit that may be
extended to the consumer during the term of the plan is
generally made available to the extent that any
outstanding balance is repaid.
Right of First Refusal
A provision in an agreement that requires the owner of a
property to give another party the first opportunity to
purchase or lease the property before he or she offers
it for sale or lease to others.
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